The U.S. Securities and Exchange Commission (SEC) has just called for a settlement of its legal battle with Terraform Labs and co-founder Do Kwon, calling on a Manhattan judge to grant summary judgment in the case.
According to the firm, the evidence is "clear, undisputed and overwhelming" that the crypto tycoon violated securities laws in distributing the Terra blockchain's own cryptocurrency, LUNA, and the now defunct stablecoin TerraUSD (UST).
Do Kwon's lies, according to the SEC
According to Friday's filing, Kwon and Terraform had plans to defraud the public about the security of the protocol and tokens - and the extent to which they were actually used. For example, the company falsely claimed that Terra had partnered with Chai, a popular Korean online payment platform, to process transactions with sellers, while allegedly conducting millions of "fake transactions" to make the network appear more active than it actually was.
Kwon also lied to investors in May 2021 about the UST's built-in stability, claiming that its peg to the dollar "automatically recovered itself" thanks to the ingenuity of its design and relationship with LUNA.
Although the algorithmic stablecoin recovered from a temporary de-peg at the time, the SEC claims this was not due to Terra's design. It stated the following:
"Defendants had entered into a secret side agreement with a third party to bring UST back to $1, in exchange for selling that batch of LUNA at dramatically reduced prices."
UST collapsed for good 12 months later, when a massive disconnection event proved too much for the protocol, and LUNA went into a hyperinflationary death spiral.
The Luna Foundation Guard sold more than 80,000 BTC at the time in a failed attempt to protect the peg, ultimately sinking the crypto market and creating a series of contagious crypto effects throughout the year.
Violating securities laws
The SEC also said the defendants had issued LUNA and MIR to investors through public markets without first registering their sales with the agency.
The SEC disagreed with the way LUNA and the company's other crypto asset securities were sold to investors. Buyers were promised a share of the transaction fees generated by the Terra blockchain, in addition to appreciation of LUNA's value as acceptance of the network increased. It described it as follows:
"Defendants presented LUNA as an investment that would increase in value based on Defendants' efforts to increase use of the Terra blockchain."
The SEC appears to want to ramp up the pressure to clinch the case against Do Kwon and Terraform Labs in the near future, especially given that Sam Bankman-Fried has also already been found guilty of seven charges filed against him.
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Source: Cryptobenelux.com
